The last standing publisher in the ebook price fixing scandal has finally settled, leaving Apple on its own to fight against the Department of Justice.
If there's one thing you can't do, it's fight the government without lots of money. Tons of it. Book publisher Macmillan has finally figured this out in its battle with the Department of Justice. The company said that it could no longer afford defending itself against allegations of ebook price fixing, and is now settling so it can move on.
Macmillan was the last in a list of five publishers who were called out by the government last spring for conspiring with Apple to raise ebook prices. Emails collected by the government clearly revealed that the six parties involved feared Amazon's dominance in the ebook sector thanks to its popular Kindle and wholesale ebook pricing. They conspired to use an "agency model" which inflated ebooks at an artificially high level across the board once the original iPad hit stores.
In response to the lawsuit filed by the Department of Justice, the five publishers admitted that they were defending themselves against Amazon which was selling ebooks at incredibly low prices in order to sell its own hardware. This was putting financial pressure on the publishers, enough so that they feared going out of business.
But soon three publishers, HarperCollins, Simon & Schuster and Hachette, packed up their defense and settled with the Department of Justice. Then in December, Penguin finally caved in and settled with the government so it could complete its merger with Random House. Now Macmillan has bailed out, leaving Apple standing all alone when it goes to court with the Department of Justice this June.
"Our company is not large enough to risk a worst case judgment," said Macmillan’s chief executive John Sargent in a latter to authors, illustrators and agents. "In this action the government accused five publishers and Apple of conspiring to raise prices. As each publisher settled, the remaining defendants became responsible not only for their own treble damages, but also possibly for the treble damages of the settling publishers (minus what they settled for). A few weeks ago I got an estimate of the maximum possible damage figure. I cannot share the breathtaking amount with you, but it was much more than the entire equity of our company."
Ouch. Whatever that "breathtaking" figure was, it was enough to turn a stubborn publisher around after it insisted from day one that it would never settle. Now Macmillan must lift restrictions of selling ebooks at discounted prices and other promotions. It will also be prohibited until December 2014 from entering into new agreements with similar restrictions. If there are any new ebook ventures with other publishers, the government must know about those in advance.
One analyst believes that Macmillan gave up because it simply wasn't worth the fight. The publisher's stand on pricing had no effect in the ebook market. Even more, ebook prices have dropped somewhat, but not "precipitously" since the first settlement went into effect last September. Settling won't change the market either, but it sure will make that pesky Department of Justice fly go away. For now.